Alderon Iron Ore Corp AXXDF

Re-ratings are here......Via Grandich!

[Shmoogs]

 

Below are key points made in research reports about latest news from ADV:

Scotia

• Buy recommendation; with $5 target price
• With the conclusion of the strategic partnership investment, management can focus on the next significant catalysts for the stock, which we believe to be securing funding for the remainder of the project construction through a likely combination of additional off-take partners, debt financings (including through Chinese banks), and equity markets.
• In our view, the Kami development schedule remains on track for early 2016 commercial production. The next major milestone in our opinion is the successful completion of the Environmental Assessment (EA) process, which ADV aims to have completed by this September.

RBC

• Buy recommendation; with $3.50 target price
• Bottom Line – Positive: The closing of the Hebei deal provides funding for the development of the Kami project, increases the credibility of the project, and provides guaranteed off-take for 60% of expected future production.
• Investment Rationale: Alderon remains our preferred name in the Canadian iron ore sector. In addition to being advantageously located in close proximity to existing infrastructure, Alderon has financial backing from Hebei and an experienced management team that we believe will successfully develop the Kami project

Marquarie

• Buy recommendation; with $3.50 target price
• The closing of the strategic investment by Hebei marks a significant milestone in the development progress at Kami. The closing of the deal reduces the financing risk for the project and confirms that Hebei is a committed and strong partner in the Kami project. We estimate that Alderon now has ~$150m in cash and a potential budget of ~$180m for the year, assuming receipt of environmental release by the end of 3Q13, leading to the granting of permits to allow construction to begin in 4Q13.
• Positive read through to other Trough developers. The closing of the deal with Hebei also has positive implications for other developers in the Labrador Trough who have yet to secure strategic partners for their projects. These companies include Champion Minerals and Oceanic Iron. The investment from Hebei shows that there continues to be interest from Chinese steel mills in the region who are seeking to secure supply of iron ore from other nontraditional sources
• Catalyst: Receipt of environmental release and construction permits. Potential for additional offtake agreements. A definitive power agreement and a rail access agreement. Start of construction by the end of the year.
• Alderon remains the lowest risk development company under coverage in the Labrador Trough. The news today marks another important milestone achieved in the Kami development timeline. Alderon continues to aggressively push the project forward and we continue to believe that Kami has the clearest path to first production amongst all the development projects in the region.

Raymond James

• Buy recommendation; with $3.25 target price
• We expect 2013 to be a transformative year for the company, as Alderon intends to commence construction of the Kami iron ore project by year-end.
• Next step: tackle the capex – As part of the strategic partnership, Hebei has agreed to use its best efforts to assist in obtaining project debt financing and additional off-take partners to tackle the estimated US$1.3 bln initial capital costs. Assuming a debt-to-equity split of 50/50,
• We expect that Alderon will need to fund US$592.5 mln in equity for its 75% stake, plus a partial free-carry for Hebei (based on the terms of the agreement).
• Potential catalysts for the shares – 1) environmental approval – 4Q13E; 2) construction permits – 4Q13E; 3) commencement of construction – 4Q13E; 4) secure debt financing and additional off-take partners – ongoing.
• Alderon’s shares trade at a P/NAV of 0.29x. This compares to the average of the iron ore peer group at 0.21x, although we note that Alderon is at a more advanced stage of development with a relatively more robust project.

Desjardins Sec

• Buy recommendation; with $3.25 target price
• Going forward, Alderon and Hebei will contribute additional capex requirements based on their pro rata ownership stakes. We expect total development capex of US$1.39b (100% Kami basis), slightly higher than the US$1.27b guidance in the feasibility study.
• We continue to expect that Environmental permits will be received by November 2013.
• A second partner could be the next major catalyst. Alderon and Hebei are reportedly in advanced discussions with potential strategic investors to either acquire an equity stake at the company or project level, or to commit to an offtake for the uncommitted 40% of production.

Dundee Sec

• Buy recommendation; with $5.00 target price
• Conclusion: We continue to recommend Alderon as our iron ore top pick
• We view this as a significant milestone for the company and should decrease financing risk moving forward.
• Alderon surged 18% before market close. We recommend buying on the news as the stock remains deeply undervalued even after Friday’s boost.
  • Alderon has remained on schedule, progressing permitting, financing plans, and discussions with potential off-take partners.
  • Pre-construction activities can begin, starting with long lead time items and building of the construction camp. Alderon plans to spend US$135-$150MM over the next year.
  • We anticipate a signed EIA by Sept/13-Oct/13, followed by construction permits in November
  • With CN out of the picture Alderon will re-engage the QNS&L for a LOM rail agreement. We would like to see the company sign on for 8Mtpa with the option for 16Mtpa. If rates can’t be agreed on within a reasonable time period the company can enter arbitration where a tariff will be decided within 60 days.
  • We expect rail rates in the US$10-$15/t range (US$13.33/t in DFS).
  • The company’s preference is to sell the remaining 40% off take, with upfront payments, and is in talks with Taiwanese, Korean & Japanese end users, and Japanese and European traders to do so.
  • We model debt to equity at  50/50 mix. The company’s current cash position at ~$160MM.
  • That leaves a financing gap of ~$1.1B to complete construction.
  • Hebei’s exposure has been capped at 25% of $1B, less its $120MM investment, or $880MM.
  • The maximum it will contribute is $220MM, but that would only be the case if Alderon raises no debt. Any amount of debt raised is reduced from that figure, and Hebei only contributes 25% of that reduced amount.
  • It’s therefore in Hebei’s best interest to bring in Chinese Banks for debt financing. We modeled additional contribution by Hebei of ~$81MM, which assumes 50% debt.

Fraser Mackenzie

• Buy recommendation; with $3.00 target price
• The conclusion of this transaction marks a significant milestone in the development of the Kami Project. We believe this partnership further strengthens the potential to finance the remainder of the capital for the project and coupled with the sound project economics and credible management team will help it reach the finish line.
• Overall, we view this as a significant de-risking event that supports our target.
• We continue to view Alderon as the most advanced and most likely to succeed Canadian iron ore development story.